Japanese Investors Returning to Australian Bonds, Westpac Says

June 4 (Bloomberg) -- Japanese investors were net buyers of
Australian bonds in May for the first time this year, Westpac
Banking Corp. said, citing data compiled from flows it manages.

Westpac’s data show investors from Japan made the biggest
net purchases since August, analysts Damien McColough and
Timothy Jung wrote in a report today. State government bonds
were the main assets bought, followed by federal government
securities and notes issued by foreign sovereign-backed
borrowers, they wrote.

Japanese fund managers were net sellers of Aussie bonds
over the six months to March 31 as new policies implemented by
Prime Minister Shinzo Abe helped weaken the yen and buoy yields
in the world’s third-biggest economy. Benchmark rate cuts by the
Reserve Bank of Australia also reduced the relative
attractiveness of the nation’s assets, driving the Aussie dollar
down 7.7 percent in May, its biggest drop 20 months.

“Our own flows give us some reason to believe that the
worst of the currency-related selling may in fact be over,”
McColough and Jung wrote.

Japanese interest was tilted toward longer-dated notes,
with purchases of securities maturing in 10 years or more
dominating, Westpac said. They were net buyers of notes due in
more than five years, and net sellers of shorter-term
securities.

Sovereign Investors

Interest from sovereign investors in Australian bonds
surged again in May, especially from Asia, according to
McColough and Jung. While there were flows across various
maturities, the data indicate a preference for bonds due in 10
years or more, Westpac said. The A$4 billion ($3.9 billion) sale
by the federal government of a new 2025 bond helped spur
interest, the analysts wrote.

The Aussie traded at 97.53 U.S. cents as of 10:27 a.m. in
Sydney, after reaching 95.82 cents on May 29, the weakest level
since October 2011.

Fund managers from the world’s third-biggest economy sold a
net 1.2 trillion yen ($11.7 billion) of Australian securities in
the six months ended March 31, the biggest sales after the U.S.
in Japan’s Ministry of Finance data. They snapped up 2 trillion
yen of French bonds and 200 billion yen of Mexican securities
over the same period.

Foreign investors cut their investments in Australian
government securities at the end of 2012 to the lowest level in
almost two years, as an improving global outlook damped demand
for the safety of the top-rated debt.

Offshore buyers held 70 percent of total outstanding
securities as of Dec. 31, the least since March 2011, according
to government data compiled by Bloomberg. Non-residents owned
A$207 billion of government bonds and bills, down from A$208.3
billion at the end of the third quarter. Total outstanding debt
rose to A$295.8 billion from A$287.5 billion.